The Soap Opera Continues
It’s a threesome. On March 16, under the supervision of the Federal Reserve, JPMorgan Chase agreed to buy cash-strapped investment bank Bear Stearns for $2 a share, or $236 million. Under the merger agreement, JPMorgan would assume the counter-party risk and exercise management control over Bear Stearns, pending shareholder approval.

The company was valued at more than $14 billion the week prior. This may be one of the swiftest corporate falls in history.

As part of the original deal, the Fed guaranteed to take on $30 billion of Bear’s most toxic assets. The central bank also directed JPMorgan to pay no more than $2 a share for Bear to assure that it would not appear that the Bear shareholders were being rescued, according to people involved in the negotiations. In television interviews last week, the Treasury secretary, Henry M. Paulson Jr., who has been closely involved in the negotiations, sought to portray the agreement not as a rescue effort but as a way to provide stability for the entire financial markets.

Today JPMorgan hiked its offer to 10 dollars per share, or over one billion dollars, quintupling the fire-sale price agreed a week earlier for the distressed investment bank. Under new terms being discussed, JPMorgan would pay $10 a share in stock — up from its initial offer of $2 a share — a figure that represented a mere one-fifteenth of Bear’s going market price.

Meanwhile, the company’s 14,000 shareholders — most of whom depended on Bear's stock as part of their retirement plans — are facing significant job cuts if the deal goes through. Of all the major investment banks, Bear Stearns probably encouraged employee ownership the most; according to the company’s Web site, employees own an estimated one-third of the outstanding company stock. The value of those shares has plunged more than $5 billion in the last year. Bear Stearns shares were worth $160 each a year ago and $87 less than a month ago.

Sources: NYT, AP, AFP and WSJ

Fed Cut Prime Credit Rate
Last week the central bank lowered the federal funds rate to 2.25 percent from 3 percent. “Many on Wall Street had hoped for a full point reduction instead of 0.75 points,” the Associated Press reports (via Forbes). “Aerospace and defense stocks are mostly up” after the cut, AP reports. Earlier, the Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent, effective March 16. This step lowers the spread of the primary credit rate over the Federal Open Market Committee’s target federal funds rate to 1/4 percentage point.

Tight Credit Could Hamper U.S. Business
Turmoil in the credit markets could take a toll on businesses in the United States, says The Washington Post. Tobias Levkovich, chief U.S. equity strategist at Citigroup, told the newspaper that capital-intensive and small businesses would also end up canceling many projects in the coming months. “If the cost of capital is going up and the return on that investment isn't changing, then fewer projects are going to get approved,” Levkovich said.

New Study Paints Rosier Picture of Consumer Home Equity
Whereas the Federal Reserve said that Americans’ percentage of equity in their homes fell to 47.9 percent in the last quarter of 2007, statistics from a national survey conducted by Ohio State University show that homeowners are doing better, with about 70 percent equity in their home. The difference between the percentages results from the Federal Reserve not counting homeowners who own 100 percent of their house.

New Residential Construction Tanked in February
Privately owned housing units authorized by building permits in February were 7.8 percent below January’s and 36.5 percent below the revised February 2007 figure, according to the U.S. Census Bureau. Turning to privately owned housing starts, the Bureau noted the February number was 0.6 percent below January’s and 28.4 percent below the year-ago number of starts.

Ford to Advertise with New Slogan
“[As] a critical part of Chief Executive Alan Mulally’s turnaround campaign, Ford is gearing up a marketing push that will take a new approach to attacking an age-old problem for Detroit — the steady defection of once-loyal customers to foreign auto makers like Toyota Motor Corp. and Honda Motor Co,” according to The Wall Street Journal. Now, after months of meetings, Ford Motor Co. execs have finally come up with a new slogan: "Ford. Drive One.”

Yeah, that oughta recapture the marketplace. The tagline is part of a new advertising campaign that will begin next month.

Autoworker Pay Plunges
“America's automakers are about to go on a hiring spree, adding 77,000 new workers to the payroll by 2016, the Center for Automotive Research, an Ann Arbor, Mich., automotive-research firm,” told Forbes. “The workers that are leaving [due to buyouts] cost the automakers $78.21 an hour, including benefits, while those who replace them will cost an average of $25.65 an hour.”

Conference Board Index Falls
The Conference Board’s U.S. leading index decreased for the fifth straight month in February. “Initial claims for unemployment insurance (inverted), building permits, the vendor performance index and consumer expectations made large negative contributions to the index this month, more than offsetting large positive contributions from money supply and interest rate spread,” the research organization said in an announcement last week.

Producer Price Indexes — Commodities & Materials Trend Upward
The preliminary producer price index for commodities rose 0.9 percent in February 2008 after a 1.1 percent jump in January 2008, a 0.9 percent decline in December 2007 and a 3.1 percent increase in November 2007, according to the U.S. Department of Labor’s Bureau of Labor Statistics. For crude nonfood materials less energy, the preliminary producer price index rose 3.3 percent in February 2008 after increases of 4.0 percent in January 2008, 0.2 percent in December 2007 and 0.7 percent in November 2007, the Bureau reports.

Production Fell in February
Manufacturing production decreased 0.2 percent in February after having been unchanged in January says the Federal Reserve. Industrial production fell 0.5 percent in February after having increased 0.1 percent in January.

Unemployment Rate is Worst in Four Years
In the week ending March 15, the advance figure for seasonally adjusted initial claims was 378,000, an increase of 22,000 from the previous week's revised figure of 356,000, says the U.S. Department of Labor. The four-week moving average was 365,250, an increase of 6,000 from the previous week's revised average of 359,250. Earlier in 2008, employers had laid off the most workers in four years.

Coal Shortage Boosts Prices
American Electric Power (AEP) said it had contracted for “more than 90 percent of its coal for 2008 before recent price increases,” according to The New York Times. AEP expects “to spend 13 percent more for coal this year than last, after spending about 5 percent more in 2007 compared with 2006.”

Long considered an abundant, reliable and relatively cheap source of energy, coal is now in short supply and high demand worldwide, as “the signs of a coal crisis have been showing up from mine mouths to factory gates and living rooms,” reports the Washington Post. “An untimely confluence of bad weather, flawed energy policies, low stockpiles and voracious growth in Asia’s appetite has driven international spot prices of coal up by 50 percent or more in the past five months, surpassing the escalation in oil prices.”

Luckily Working Through Lunch
Motorists and truckers driving on Interstate 95 in Delaware had good luck on their side as an engineering inspector pulled over to have lunch. While eating a late lunch, the structural engineer noticed a substantial crack in a concrete pillar under the highway — which allows 190,000 drivers a day to go along the Eastern Seaboard — took pictures of the cracked column with his cell phone and called PennDOT immediately.

“The 6-foot crack in a 15-foot tall column led transportation officials to close a three-mile stretch of the highway within hours of [the engineer’s] discovery,” after which workers erected four steel towers to take the weight off the pillar and support the highway, says AP.